The following is not intended as legal advice- it is merely practical and logical information that investors should consider in order to protect themselves and their assets.
1. If you are thinking of opening an account, it would
be prudent to check out your broker or adviser's background
at www.nasdr.com/2000.asp.
It's easy, it's free and it may alert you to any potential
problems. Remember, it's much easier to protect yourself
before putting your money on the line than afterwards.
2. Assuming you open an account, make sure to get copies of all account agreements and forms. Start a file and store copies of all transactions and trade confirmations, as well as monthly, quarterly and year-end statements. Talk to your broker at length before making that first investment and make sure you are both on the same page regarding your objectives and risk tolerance. If you make any notes about that conversation, keep them in your file for later reference. Be sure you understand in advance what fees and commissions the brokerage firm charges for transactions. If they give you a written fee schedule and you don't understand it, question the broker and make sure you agree with the charges.
3. When your broker or adviser makes a recommendation, make sure it passes the "smell test." If it doesn't smell right, DON'T DO IT! Remember, it's your money and if for any reason you are hesitant, politely tell the broker no. If he persists, use a simple technique of telling him it is your policy not to act at that moment on any recommendation but that you will get back to him shortly. If it's so terrific, it'll be there in a few hours or days. This gives you the opportunity to rationally reflect on the suggestion without his pressure tactics. Things are difficult enough without being put "on the spot" by a broker who may have an agenda that is different than yours. Remember, investments are like trains- if you miss one it's okay, there will be another one coming along shortly. Better to miss one than get involved where you don't belong. If he continues to persist and pressure you and will not take no, then clearly he does not have your best interests at heart and he should be politely relieved of duty! If you decide he isn't the broker for you, keep in mind that you don't owe anybody any explanations- simply tell him that he is no longer your broker and you hope he has a pleasant day- that's it!
4. If you have an existing relationship with a broker, it is probably a good idea to periodically sit down with him to discuss your objectives and assess how things are going. Objectives, needs and risk tolerance are fluid concepts- they change over time as you change and as the investment landscape changes. What may have been your initial plan last year may no longer be good for you today. Talk to your broker and make sure he clearly understands what your strategy is.
5. If you get involved in an investment that you later feel isn't right, get out! Do not let commissions dictate your decision to liquidate and don't start analyzing the investment from an unrealistic point of view. We all get involved in "stinkers" at some point- it's unavoidable. The trick is not letting your losses get out of hand. As a seasoned and experience floor trader, I can tell you it is better to take a small loss, take your licks and live to fight another day than to keep relying on a losing proposition. Often, bad gets worse. Get out, get comfortable and re-assess. You can always get back in.
Remember the old joke: At $50, your broker calls and says it's a screaming buy- at $40, he calls and says buy, but not as much- at $30 he stops calling you and when it hits around $10, you call him and he doesn't answer the phone!
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